Unit-linked insurance plans, or ULIPs, are life insurance policies designed to assist you in achieving your long-term financial goals. One of the most significant differences between ULIPs and any other investment option is that, in addition to all the investment growth, a ULIP can guarantee you the achievement of your goal regardless of any natural contingencies.
Any investor’s goal is to get the best potential profits. A ULIP plan can be a game-changing choice for maximizing returns and building money over time to achieve your life goals. ULIPs can be an appropriate alternative for investors of any risk profile and at any life stage because the product is constructed uniquely to provide the triple advantage of life insurance, wealth building, and tax efficiency. However, there are a few factors to consider when choosing between the several ULIP plans.
The following are 7 things to keep in mind when selecting the best ULIP plan in India:
- Consider Your Long-term Objectives
It is critical that your life objective and the investment option you select are in sync. However, in order to accomplish so, you must first establish the life goals that you wish to achieve. You can then choose the ULIP investment plan that best suits your life goals once you’ve set them.
- Get The Right Amount Of Life Insurance
ULIPs, as an insurance product, protect your family by extending life insurance coverage. This life insurance policy is designed to ensure that your loved ones are financially secure even if you are not present. As a minimum life cover, ten times the ULIP premium can be applied. They can supplement your existing comprehensive protection plans by delivering extra coverage. Before you invest, examine the terms and conditions of your intent to ensure that you are adequately covered.
- Learn About The Premium Payment And Lock-in Periods
Understanding your ULIP policy’s premium payment and lock-in periods is essential. The total number of years you as a policyholder will pay the premium to the company is the premium payment period. There are also types of ULIP plans available where you can even make a ‘paid-up policy,’ in which the premium payment period is less than the policy maturity time.
The policy’s lock-in period is the minimum amount of time required for a plan or policy to mature. It is 5 years for ULIPs. This means that you must invest in a ULIP for at least 5 years to receive the benefits.
- Understand the Tax Advantages of ULIP Plans
The amount you invest in ULIP plans is tax-deductible under section 80C, and the maturity amount is tax-free under section 10(10D). Up to Rs. 1.5 lakhs is deductible in a financial year under section 80C and is deducted from the investor’s taxable income.
The maturity amount is free from income tax under Section 10(10D). To ensure a tax-free maturity value from ULIPs, you must meet the following criteria:
- Your annual investment in any ULIP plan should not exceed 10% of the amount of life insurance it provides.
- If you purchased ULIPs on or after February 1, 2021, the capital gains from those plans would be taxable if you paid more than Rs. 2.5 lakhs in premium in any policy year.
- Examine The Insurer’s Financial Stability
The majority of investors overlook the importance of analyzing and evaluating the insurer’s financial capability. Always undertake an in-depth and complete investigation of the insurer’s track record, including the company’s financial capacity to serve its customers, before investing in a ULIP investment plan. Another essential indicator to consider is the claim settlement ratio.
- Consider Opting For a Longer Plan Term
Although ULIP plans have a 5-year lock-in period, it is preferable to stay invested for the long term rather than withdrawing as soon as the lock-in time expires. You will be able to receive additional advantages of the opportunity to create more wealth by investing for a longer-term.
- Get Know The Important Terms
The terms listed below are critical to an understanding before selecting the best ULIP plan in India:
Life Cover – The lump-sum payment received by the insured’s family or beneficiary nominees in the event of the insured’s death due to an accident or terminal illness.
Policy Cancellation Terms – The terms, circumstances, and rules that govern the policy’s cancellation.
Maturity Value – It is the sum received by a policyholder or investor on the policy’s maturity date.
Top-up – Top-up premiums are an extra payment you can make on top of your regular premium payment that is irregular, infrequent, and voluntary.
Fund Switch – ULIPs provide you the freedom to move between different funds based on your risk tolerance. You can invest in equities if you prefer to be a risk-taking investor. If you are a moderate or conservative investor, on the other hand, you can switch from equities to balanced or debt funds.
Conclusion
It is critical to consider your life goals as well as your risk appetite while selecting the best ULIP plan in India. You may also conduct research or get guidance from an expert on the essential things to consider before choosing a ULIP plan, which will assist you in making an informed decision.